INSURERS AS INVESTORS
The insurance industry (property/casualty and life/health) is a key player in the capital markets, with $5.8 trillion in cash and invested assets in 2012, according to SNL Financial. Total P/C cash and invested assets were $1.4 trillion in 2012, according to SNL L/H cash and invested assets totaled $3.4 trillion in 2012. The majority of these assets were in bonds (65 percent of P/C assets and 75 percent of L/H assets).
Insurance companies invest the premiums they collect in state and local municipal bonds, helping to fund the building of roads, schools and other public projects. They provide businesses with capital for research, expansions and other ventures through their investments in corporate equities and bonds.
Because their losses are more volatile than those in the life insurance sector, property/casualty insurers invest largely in high-quality liquid securities, which can be sold quickly to pay claims resulting from a major hurricane, earthquake or man-made disaster such as a terrorist attack. In 2011 alone, property/casualty insurers’ holdings in municipal bonds totaled $331.0 billion. Life insurers, whose benefit payments are more predictable, invest more heavily in corporate stocks and corporate and foreign bonds, with holdings in these sectors of $1.4 trillion and $2.1 trillion, respectively, in 2011, according to the Federal Reserve.